Germany revamps AML/CFT regime

The Federal Government has agreed new draft legislation (PDF, available in German only) that will transpose the Fourth EU Money Laundering Directive (4MLD) into law, thereby completely rewriting the Money Laundering Act (Geldwäschegesetz or GwG) from 2008.
The new law introduces a number of major changes. One of the most important elements of the new act is the introduction of a central electronic transparency register that contains information about beneficial owners of companies.

Recording beneficial ownership is expected to make it more difficult to abuse companies and trusts for the purposes of money laundering, tax fraud and terrorist financing and has been a key tenet of 4MLD.

Access to the register will be granted to the financial intelligence unit (FIU), supervisory authorities and law enforcement agencies, as well as other companies and institutions that are subject to the GwG and that need the information in order to fulfil their obligations under this law. Other persons and organisations with legitimate interest, such as non-governmental organisations and specialist journalists, will also be able to access it.

Risk-based approach

The draft legislation will require all regulated entities to put in place a risk-based approach to AML/CFT. The financial sector that is supervised by BaFin has been subject to this approach for quite some time under the German AML Act and should be familiar with the RBA and its implications for AML/CFT policies and procedures. In future, however, so-called Designated Non-Financial Businesses and Professions will also be captured.

Hans-Martin Lang, head of division at BaFin’s Department for the Prevention of Money Laundering. told Thomson Reuters Regulatory Intelligence these entities would have some catching up to do.

Under the new regime, regulated entities will have to document their own and, in the case of companies subordinate to them in Germany or abroad, group-wide risks. Based on that assessment they will have to put in place their measures to prevent money laundering and terrorist financing.

While simplified measures may suffice for low risks, higher risks will require a stronger approach. BaFin said it would make more targeted use of its resources and it would require the entities under its supervision to do so too.

“This should enable the constantly evolving methods of money launderers and financers of terrorism to be combated flexibly and effectively,” BaFin said.

Administrative fines and sanctions

Breaches of AML/CFT provisions will be subject to significantly increased fines, with the maximum sum for administrative offences rising from 100,000 euros to 5 million euros for banks.

Under the new law, supervisory authorities will also have additional tools to employ in cases of AML breaches, including the possibility temporarily to ban persons responsible for the breaches from exercising managerial functions.

Lang said as before, the question whether BaFin will make use of the enhanced possibilities to sanction an infringement will depend on the specifics of each concrete case.

Lang said the broader catalogue of sanctions and measures would give the regulator the opportunity to react adequately in such cases. In cases of more formal breaches, however, it was likely supervisory measures would often be more appropriate than imposing a fine.

Lang also expected the mere increase in potential fines that could be administered to act as a deterrent and result in increased compliance with the AML CFT provisions. In future, BaFin will also publish AML/CFT-sanctions as soon as they have become incontestable, a measure widely expected to have an additional deterrent effect.
Financial Intelligence Unit (Zentralstelle für Finanztransaktionsuntersuchungen)
In addition to rewriting the GwG, the new law will also restructure and expand Germany’s Financial Intelligence Unit. The FIU was previously based at the Federal Criminal Police Office (the Bundeskriminalamt or BKA) within the portfolio of the Federal Ministry of the Interior.

It will now be transferred to the Central Customs Authority (Generalzolldirektion) as an administrative authority within the portfolio of the Federal Ministry of Finance.
At the same time, the FIU’s functions and competencies will be revised on the basis of the provisions of the 4MLD, with one area of emphasis to be operational and strategic analysis. The FIU will also act as a filter for the first time, only forwarding “worthwhile” reports on to the law enforcement agencies so as to take some of the burden off them.